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2015 (8) TMI 797 - CESTAT BANGALORE

2015 (8) TMI 797 - CESTAT BANGALORE - 2015 (40) S.T.R. 788 (Tri. - Bang.) - Waiver of pre deposit - demand of service tax on differential interest - It was taken note of by the Revenue that appellants grant loans to the borrowers and build portfolio of loan. These portfolios of loans are sold to other financial institutions by assigning the entire asset. - As per this deed, SKS has two roles namely the 'Assignor' and the 'Servicer' and HDFC is the 'Assignee'. - Microfinance lending activities .....

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ved a loan from the bank equal to the amount or more than the amount of portfolio transferred, the assignee or the servicer pays the principal and the interest charged by the bank to the bank. In case where the servicer is a different person, the appellant will be simply paying back the loan with interest charged by the bank and will have nothing to do with the rural women who have received the loan. - appellant does not have a prima facie case on merit - Partial stay granted. - ST/Stay/20699/20 .....

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During the course of verification of records, it was found that SKS had received not only interest amount on loans given to the borrowers but also amounts towards consideration received for the loan assets assigned to banking and financial institutions. 2. The definition of 'taxable service' under Section 65 (105) (zzzl) of Finance Act 1994 provides that 'taxable service' means any service provided or to be provided to a banking company or financial institution including a non-b .....

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the mechanism by which the loan receivables of the appellant (assignor) are sold (assigned) to a third party for an immediate liquidation and this transaction is executed by way of "Assignment Agreement". Once the loans are assigned, the assigned portfolio is treated as off the Balance Sheet of the appellant provided the risks and rewards are transferred. Considering one such Deed of Assignment between SKS and HDFC Bank Ltd., the same was examined. As per this deed, SKS has two roles n .....

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vicer and the payment of service tax only on the amount of one time fee by SKS is not in compliance with law. It came out during the hearing that the assignment fee varies from Rs. Nil to ₹ 10,00,000/- (Rupees Ten Lakhs only). 4. Taking the differential interest as the consideration for service provided by the appellant under the category of Recovery Agent Service, service tax of ₹ 34,24,93,571/- (Rupees Thirty Four Crores Twenty Four Lakhs Ninety Three Thousand Five Hundred and Seve .....

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oods and service. c) That the residual income sought to be taxed is interest which cannot be charged to service tax in terms of the Service Tax (Determination of Value) Rules. d) That consideration for acting as a servicer is identified in the agreements of assignment itself and cannot be discarded on any ground since the consideration is ascertainable in money. That in terms of Section 67 when the amount of taxable is ascertainable in money terms the said consideration is the value for the purp .....

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That the ingredients essential for invocation of the extended period under Section 73(1) proviso of the FA do not exist. i) That interest and penalty are also untenable. 6. The learned Commissioner (AR) draws our attention to the provisions of Transfer of Property Act 1882. As per Section 3, actionable claim is a claim to any debt, other than secured debt. In simple terms actionable claim is a plain unsecured debt which can be enforced in civil courts. He submits that from the deeds of assignme .....

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t on the actionable claim which no longer belongs to SKS and shown as provided by SKS has to be considered as consideration for acting as a receiver. 7. We have considered the submissions made by both the sides. There is no dispute that the loan given by the appellant to the poor women have no collateral security and therefore have to be treated as actionable claims. There are three possibilities when an actionable claim is sold or assigned or transferred. The first category is that the assigned .....

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pays to the assignee. In such cases, person appointed, has to pay service tax as a provider of recovery agent service. In the third category which is the issue under consideration before us is the case where after taking over the loans, the assignee hands over the amount of consideration back to the assignor and consider it as a loan with a specific rate of interest for which a collateral is also provided by the appellant before us. This loan carries a specified rate of interest. By a separate d .....

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